RBA Set to Hold Rate as Tight Election, Tariffs Fuel Risks
Australia’s central bank is set to keep interest rates unchanged on Tuesday as it waits out an election campaign fought on cost-of-living issues and girds for the economic impact of a US-driven upheaval in global trade.
Economists surveyed by Bloomberg expect the Reserve Bank’s new monetary policy board will stand pat at 4.1% and stick with a cautious stance after easing for the first time in four years last month. Governor Michele Bullock will hold a media conference an hour after the decision at 3.30 p.m. Sydney time.
The RBA’s meeting comes in the early days of an election campaign that opinion polls suggest will see a tight result at the May 3 ballot. The most likely outcome is a minority government in which the ruling Labor party or center-right opposition will need to do a deal with small parties or independents to secure a parliamentary majority.
A day after the RBA’s decision is President Donald Trump’s “Liberation Day,” when he’s expected to enact significant new tariffs on US trade partners. Even if Australia avoids a direct impact, as a small, open economy it’s highly geared to global activity and sentiment and is therefore likely to see some fallout.
Recent monthly data showed more than 50,000 jobs were lost in February and inflation is now inside the RBA’s 2-3% target, though the board is likely to want to see a broader body of evidence before cutting again. Both Bullock and her deputy Andrew Hauser stressed exactly that point in public comments after February’s rate cut.
“Back-to-back cuts in February and April were never on the table,” said Luci Ellis, chief economist at Westpac Banking Corp. and a former assistant governor. “The RBA was too hawkish in its rhetoric last month for that, and the board made clear that last month’s cut did not foreshadow more. Cutting again at the April meeting would therefore be damaging to its credibility.”
Money markets are wagering a near-80% chance of an easing in May, though a cut isn’t fully priced in until July. The May 19-20 meeting is seen as realistic because not only will the election be over and economic fallout from tariffs be clearer, but the RBA will have seen quarterly inflation data — the most comprehensive price reading — and it will have updated staff forecasts.
Tuesday will be the first rate decision under the RBA’s new structure, with Marnie Baker, a former CEO of Bendigo and Adelaide Bank, and Renee Fry-McKibbin, who led an independent review of the RBA, joining the newly-configured nine-member board.
Australia’s center-left Labor government last Tuesday unveiled tax cuts and other sweeteners in a budget that came three days before an election was called. Economists worry that, given the closeness of the political contest, there may be more spending announcements in the coming weeks from both major parties, threatening to rekindle inflation.
A pause “will give the RBA visibility on the likely fiscal policy settings accompanying the election result as well as some resolution on the outlook for global trade policy,” said Andrew Boak, chief economist for Australia at Goldman Sachs Group Inc.
Federal Reserve officials have warned that tariffs may be a significant roadblock to recent progress on inflation, signaling further rate cuts may not be in the offing. Indeed it could be that the new imposts both slow US economic growth and revive inflation in a rerun of the stagflation seen in the 1970s.
Andrew Ticehurst, Sydney-based strategist at Nomura Holdings Inc., expects a “hawkish” pause from the RBA, saying Bullock will likely push back against market pricing for roughly 70 basis points of cuts by the end of the year.
The RBA will publish its semi-annual Financial Stability Review on Thursday. The following week, on April 10, the governor will deliver a rare speech at an event for Chief Executive Women in Melbourne.
Source: Bloomberg
